Tuesday 13 November 2012 10.26 EST
First published on Tuesday 13 November 2012 10.26 EST

There's a certain irony to the fact that in an era when outside songwriters and producers are used more than ever (well, at least since the heyday of writers such as Bacharach/David in 1960s) – they've been decimated when it comes to revenue share. They have almost disappeared completely when it comes to being credited for their work – online.

A little over a decade ago, the income streams for a professional songwriter were pretty straightforward. There were basically three of them: sales of records, radio play and, once in a while, a synch for a movie soundtrack or an ad.

The synch deals would be negotiated, with the rate often depending on how famous the artist was (using a U2 track would cost much more than a track from an unknown act), and the songwriter usually signing off on the deal.

Sales rates were a set percentage of the price and radio play was paid as a percentage of ad revenue with a minimum per play or, for the BBC, a per-play set rate. We pretty much knew how much we'd get for a certain amount of spins or sales. Perhaps that is why iTunes gets so much love from artists and songwriters – it's transparent.

Not so with most of the rest of the digital music services. As collection societies, labels and publishers are forced to sign non-disclosure agreements (NDAs) covering the deals they make with services such as YouTube and Spotify, the artists and songwriters they represent are not allowed to know how much, or on what basis, they're supposed to be paid.

Their only option is to look at their royalty statements in an attempt to figure out how much each service pays, and trust that they've been paid correctly and fairly. As I've reported, in the case of YouTube, songwriters could only conclude that the rates the company pays are ridiculously low, at about $40 (£25) per million streams (if the song was written by a single writer).

Naturally, songwriters prefer to concentrate on creating music instead of trying to decipher why their digital royalties are so low. But I decided to enquire further, and discovered that the deeper you look into the nature of digital licensing deals, the murkier the waters and that even people working at music companies were confused about them.

To begin to understand why, first of all one needs to understand that the copyrights to each record are divided into two categories: the master rights for the recording, which belong to the record label/artist, and the rights to the composition, which belong to the publisher/songwriter. As YouTube marries video and audio, it requires both a performance licence and a mechanical synch licence for each category for each song.

Many record labels I spoke to were shocked by how little the songwriters in my article got paid for YouTube videos. A British independent label told me they get around £1,000 per million YouTube streams, and a US independent relayed that their revenue was £1,800-£3,000 per million streams, depending on what type of ads were served with the video.

Their surprise was understandable, considering songwriters get 15% of the royalty pie on iTunes. A digital executive at a major label told me that, in his opinion, songwriters should get a higher percentage than that for streaming – perhaps a 25% share of all royalties, he said.

Yet, as we can see from writers' royalty statements, in the US, where YouTube has been licensed by the local performing rights organisations (PROs), who represent songwriters, the royalty rate is on average 1% of what the record labels get from YouTube.

There is a loophole, however, which some US publishers – including the majors – have discovered. In the US, the PROs (Ascap/BMI/Sesac) only license the performance rights, and, as noted above, YouTube requires both a mechanical synch licence as well as a performance licence. Though most songwriters aren't even aware of this, it's understood that all the major publishers already have such a licence agreement in place with YouTube for the US.

While PROs are pressured to license so as to not be accused of monopolistic behaviour, this pressure does not apply to individual publishers and, though all these deals are covered by NDAs, it's understood that – just like the major labels – the major publishers required a substantial upfront advance payment to grant a blanket licence for their catalogues.

Yet, so far, no songwriter I've spoken to who signed to a major publisher has seen any YouTube royalties on their mechanical royalty statements. How can this be?

The owner of an independent label and publisher who used to work at a big digital music service has a possible explanation: "I have not seen any specific deal between a publisher and YouTube, but what I do know is that, in general, major music company deals with digital services in the last seven to eight years have been [based on] upfront advances.

"This is not YouTube specific," he continues. "The agreements are: you're going to pay us an advance of x against future royalties, and that advance is almost always higher than the royalties will be. YouTube will report to the publisher on a monthly basis – but it's not attributable to the artist and songwriter as it's not on a per-usage basis. It creates a buffer zone for the labels.

"Then it becomes an issue of negotiations. You may go to the publisher and say: I wrote 50% of this song that's got 100m views on YouTube, I've got to get something for it. The publisher will make up a figure and give it to you.

Though the prevalence of NDAs makes royalty reporting a matter of blind trust, it's been confirmed that at least one major label distributed the surplus advance from Spotify to their songwriters and artists. Perhaps the "cheque is in the mail" for YouTube streams?

According to a recent Hollywood Reporter article, songwriters should expect YouTube US royalties to be 10-15% of advertising revenue. This would be at least $300-$500, judging by the reported ad revenue record labels receive. (Thought this article claims songwriters should expect 42% of YouTube royalties.)

Perhaps the prospect of receiving YouTube royalties that are 10 times what they're currently making will be enough of an incentive for songwriters to read their royalty statements to make sure they've been properly remunerated for their hard work.

An even better solution would be for songwriters (and artists) to be allowed to know what kind of deals those representing them have struck with digital services such as YouTube and Spotify – the lack of transparency causes suspicion and as much discontent as the paltry royalties. Then, maybe, they'll grow to like Spotify and Google's YouTube as much as Apple's iTunes.

• Next Plugged In: How any music maker can make decent money out of YouTube streams